Mortgage Rate Update March 21, 2013

Mortgage rates are priced slightly worse this morning compared to Monday.

The financial market’s focus remains squarely on Cyprus today.  The small European island country which has a relatively insignificant GDP is attracting attention because of the uncertainty surround their circumstances.  NPR’s Planet Money did a great piece on the topic which you can read HERE.  The bottom line is that the uncertainty regarding the outcome in Cyprus and the possible impact on other European countries is helping US interest rates remain about .125% below recent high marks.

The Federal Housing Finance Agency released its monthly report on home prices which showed strong year-over-year price appreciation measured at +6.8% nationwide.  Undecided homebuyers might be interested to know the financial impact of this level of appreciation.

If we assume a home price of $275,000, 20% down payment, and 30-year fixed rate mortgage at 3.625% (APR: 3.75%) then…..

Down payment: $55,000

Monthly Principal & Interest payment: $1,003

A year later the same home would sell for $293,700 assuming a 6.8% appreciation rate.  Under the same loan assumptions:

Down payment: $58,740 (+$3,740)

Monthly Principal & Interest payment: $1,072 (+$69/ month)

Keep in mind that comparison assumes that interest rates remain near historic lows which is not expected.

Speaking of interest rates, as expected the Fed announced yesterday that it would leave it’s existing stimulus programs in place.  They did comment that they would likely reduce quantitative easing gradually over time as opposed to shutting off the program cold turkey.  Special attention will be paid to the meeting minutes when they are released in a couple weeks.  The bottom line is that the Fed will “take away the punch bowl” at some point which will put upward pressure on interest rates.

Current Outlook: locking bias